The rise in metropolitan Washington's residential property assessments, which just a few years ago were believed to be spiraling out of control, has taken a sharp nose dive this year.
The change reflects a flattening of local housing prices and is viewed by local officials as a harbinger of tighter local budgets and difficult political choices in the future. Already, area politicians have shaped austere budgets for the next fiscal year, creating few new programs and keeping most budget increases near the rate of inflation.
Residential property values in the District of Columbia dropped an average of four tenths of 1 percent this year, the first decrease in 20 years. Arlington County reported a decrease of 2.8 percent, the first decline in its assessments since the Great Depression.
Fairfax County and Alexandria recorded their smallest increases in at least a decade. In the suburban Maryland counties of Prince George's and Montgomery, where property is assessed every three years, assessments increased sharply. County officials said, however, that much of that increase is believed to have occurred in the previous two years.
"We've had a deep recession, that's obvious," said Rufus Lusk Jr., who runs a real estate informational service. "Real estate is no longer an investment--it's a shelter."
For local governments, which rely on property tax as the main source of revenue, the lower-than-anticipated assessments have meant a downward readjustment of their revenue estimates. Many are trying to make up the difference by hiking fees for a laundry list of services.
Rapidly climbing assessments once gave local governments a virtual free ride, allowing politicians to claim credit for lowering property tax rates year after year at the same time homeowners were paying more in property taxes due to the increased value of their homes.
"Up to this point, local governments have been able to say you're paying more tax because your property is worth more," said Thomas Muller, a researcher with the Washington-based Urban Institute. "Now they'll have to say your property isn't worth any more, but you have to pay more taxes anyway."
In most jurisdictions, the steep drop in the rate of residential property appreciation was softened by increases in commercial property values and new housing starts, which kept the overall property value of jurisdictions from declining.
"The one revenue source which for a dozen years kept rising is now flattening," Muller said. "That presents local governments with some untenable political choices--that is curtailing services or raising the property tax rates." Only a few local jurisdictions chose the latter option this year.
Arlington and Alexandria increased property tax rates--Arlington by a penny, to 99 cents per $100 of assessed value, and Alexandria by 4 cents, to $1.41 per $100 of assessed value. For Alexandria, the move represented the first increase in the tax rate in 10 years. In Arlington, there was only one other rate increase in at least five years, and it came last year when the rate was hiked by 2 cents. The District and Fairfax kept property tax rates the same. Montgomery shaved a penny off the general property tax rate, which still translated into an 8.5 percent tax increase for homeowners because of the county's average 30 percent increase in residential values in its three-year reassessment.
In Prince George's, where a voter-backed tax amendment limits the amount the county can collect from property taxes, the rate was dropped by 9 cents in the face of an average 24 percent three-year assessment increase on residential property values.
Area politicians, while concerned about having less property tax revenue available for future budgets, were still not ready to make predictions of fiscal disaster ahead. Future budgets would likely be leaner, with savings predicted to come out of employe pay packages, particularly for transit workers, and to a lesser extent employe benefit packages.
Those two budget items, the largest in all the region's local budgets, were cited in a recent report by the Greater Washington Research Center as the potential source for massive local budget deficits in the next decade.
Area politicians interviewed said that tax rate increases likely will be needed in the coming years, but they emphasized that new development is still expanding regional tax bases, local governments have managed to bring costs under control, and many jurisdictions have lately been squeezing more revenue out of alternative taxes.
"The property tax, while our main source of revenue, is not our only source," said Arlington Board member Mary Margaret Whipple, a Democrat. "The increase in costs for local government has also abated."
Montgomery Executive Charles W. Gilchrist said recently, "The tax rate will have to be higher if assessments level off. But I don't see a fiscal crisis looming in any way."
Among the alternative revenue sources available to local governments are enforcement and user fees, the amount charged on everything from parking tickets to government-run tennis courts. And all across the region, such fees have increased dramatically.
In Montgomery, an amusement tax was increased on video games--the so-called "Pac Man Tax." Gilchrist also has proposed increases for health services, recreation department classes, parking and alcohol rehabilitation programs. In the District, Mayor Marion Barry has proposed increasing virtually every fee, from the price of reporter press passes to the cost of mortician licenses.
The Arlington Board increased user fees mostly on people doing business in the county, such as developers, but the charges also were hiked for late library books and for various recreational services.
In Alexandria, the city council raised the meal tax and the hotel tax. In suburban Maryland, which uses the unusual triennial assessment method, one-third of the property in a jurisdiction is reassessed every three years. That means that homeowners who received their assessment notices last December had not been assessed since 1979.
The triennial method was adopted by the General Assembly in 1979 to help cushion homeowners against year-to-year jumps in assessments. But now that property values are flattening, the three-year method has come under criticism by Maryland homeowners, who see their neighbors in Virginia and the District receiving lower assessments.
"I don't understand why our values went up and everyone else's dropped back slightly," said Bill Anderson, president of the Montgomery County Taxpayers League. "If you have a declining market, you have a problem under this assessment method. In a declining market, the triennial assessment method really grabs you."
James Soresi, an assistant supervisor in Prince George's assessment office, said his office does not yet have an estimate for the average residential increase over last year.